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The False Claims Act (FCA) 31 U.S.C. § 3729 et seq. is an important tool that the U.S. Government utilizes to combat fraud and other alleged wrongdoing in performing federal contracts. The FCA's recent amendments significantly expand its reach and made it easier for qui tam (whistleblower) plaintiffs to bring these cases. The changes greatly expanded the potential exposure to companies that do business with the government. In addition to seeking coverage for the alleged FCA violations under professional lines liability policies, companies facing FCA claims frequently possess employment practices liability insurance ("EPL") claims to cover losses arising from the whistleblower's alleged wrongful or retaliatory termination. This QuickCounsel discusses EPL coverage and common insurance coverage issues.

EPL Coverage

EPL coverage frequently pays the Loss of an Insured arising from a Claim first made against such Insured for any Wrongful Act, which EPL policies may define as "any actual or alleged . . . Employment Practices Violation" including "any actual or alleged . . . wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of an implied contract; [or] Retaliation."

EPL policies frequently define "Retaliation" to include: "[A] retaliatory act of an Insured alleged to be in response to any of the following activities ... the filing of any claim under the Federal False Claims Act or any other federal, state, local or foreign ... whistle-blower' law." Accordingly, insured companies facing a retaliation action under the FCA may be entitled to coverage for losses incurred in connection with defending and resolving that action.

Common Insurance Coverage Issues Arising in EPL Coverage Matters for False Claims Act Retaliation Claims

The following is a non-exhaustive list of potential coverage issues that insurers may raise when a company seeks EPL coverage for FCA retaliation claims. History teaches us that upon receipt of a claim insurers do not quickly run for their checkbooks and the number of coverage defenses an insurer asserts may correlate to the size of a claim.

Employee Status

Insurers may contend that the whistleblower was not an "Employee" as defined by the EPL policy and, accordingly, the company is not covered for losses stemming from the retaliation claim. First, the EPL policy may broadly define who constitutes an Employee, including, for example, "any other individual who is contracted to perform work for the Company," in certain circumstances. See Chartis, PrivateEdge Plus, EPL Coverage Section, Form 95728 (9/07).

Second, federal or state law may dictate that an individual's workplace acts and conduct render her an employee even if she is retained as a consultant. For example, in some states, the determination of whether an individual is an employee or a non-employee contractor focuses on the issue of control; specifically whether the purported employer had the right to control the individual in the performance of his or her work. Likewise, if a worker performs services that require a license, or performs services for a person who is required to obtain such a license, there may exist a rebuttable presumption that the worker is an employee.

Multiple Damages

The FCA provides for relief to a successful whistleblower (or "relator") in a retaliatory action including two times back pay. Insurers frequently assert that multiple damages are not insurable because they are punitive in nature.

First, several courts addressing this issue determine that the purpose of the FCA's multiple damages provisions are compensatory in nature because they are designed to make the government, or, in the retaliation context, the former employee, whole. In fact, 31 U.S.C. 3730 (h)(1) states that "[a]ny employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole . . ."

Additionally, some EPL policy forms provide coverage for multiple damages "if such damages are insurable under the law of any jurisdiction that is most favorable to the insurability of such damages and has a substantial relationship to the Insureds, the Claim, the Insurer, or this Policy." See, e.g., St. Paul Travelers, EPL Plus 1, MEL 2578 Ed. 3-05, Definition of "Loss." Courts in many jurisdictions find statutory multiple damage awards compensatory in nature and thus covered "Loss" under an EPL policy.

Relator's Attorneys' Fees

Pursuant to 31 U.S.C. 3730 (d), a court may award a successful qui tam plaintiff its reasonable attorneys' fees against the defendant. In a subsequent coverage claim to recover payment of relator's counsel's fees, insurers may contend that such fees are not covered because they are "fines or penalties" excluded from the policy's "Loss" definition. EPL policies frequently broadly define "Loss" to include the "amount which the Insureds become legally obligated to pay on account of each ... Claim' . . . for Wrongful Employment Practices for which coverage applies, including, but not limited to, damages, judgments settlements . . . " but carve "fine and penalties" out of the Loss definition. See, e.g., St. Paul Travelers, EPL Plus 1, MEL 2578 Ed. 3-05, Definition of "Loss."

Like with multiple damages, relator's attorneys' fees are likely covered if such damages are insurable under the law that is most favorable and has a substantial relationship. Many courts across the country find that relator's attorneys' fees are compensatory in nature and not a fine or penalty. Insureds may find support for this point in cases across the country determining that attorneys' fees arising in other contexts are covered. If the EPL policy contains a separate "fines and penalties" exclusion that is not contained in the definition of Loss, many such exclusions only bar coverage to the extent that such fines or penalties are imposed by a judgment or other final adjudications. Accordingly, any such exclusions would not apply if an insured settles an underlying FCA lawsuit.

What is the "Claim" Triggering Event

An issue frequently raised in coverage disputes involving claims-made liability insurance policies, such as EPL policies, is determining whether certain pre-lawsuit events or disputes constitute a "claim" sufficient to trigger coverage. Disputes over when a claim arises are especially prevalent in FCA claims because the Government may take certain investigative steps prior to deciding whether or not to intervene. As is required under 31 U.S.C. § 3730(a), the Government commences an investigation to assess the allegations to determine whether the Government should intervene in an action. During the course of an investigation, the Government frequently serves Inspector General subpoenas demanding that the potential target company produce documents.

Claims-made liability insurance policies, such as EPL policies, are triggered upon the insured's receipt of a claim. Upon an insured's providing notice of a claim, its insurers may dispute the following: (1) whether the notice-triggering event constitutes a "claim" at all; or (2) whether some earlier event constituted a "claim" of which the insured was obligated to provide notice to its insurer. While there is no consensus among courts across the country, in the absence of a clear answer courts overwhelmingly accept the policyholder's business judgment of what event constitutes a claim to maximize coverage.

A potential policy definition of "claim" may include a civil proceeding for monetary or non-monetary relief commenced by service of a complaint or similar pleading. Some policies include in the "claim" definition receipt of written demands for money. Frequently, policies do not define the term "claim," in which case courts may look to dictionary definitions to determine the common meaning. Dictionary definitions of "claim" are exceedingly broad, e.g., "a demand for something due or believed to be due"; "something that is claimed." See Merriam-Webster Dictionary 227 (11th ed. 2004). Given significant variations in policy "claim" definitions and the lack of defined terms in many instances, the point at which a dispute ripens into a "claim" that triggers coverage is frequently disputed.


Insured companies often face a retaliation claim as one cause of action pled in a lawsuit that also alleges fraud-based FCA violations as separate causes of action. EPL policies lacking an allocation provision and an FCA exclusion may arguably provide coverage for the entire suit. (Note: some EPL policies exclude non-employment FCA claims, which may open the door to broader coverage for those EPL policies that do not contain an FCA exclusion.) .

When settling an FCA suit, the government and the relator often negotiate a breakdown between the retaliation claim and the fraud claim without the insured company's input. The defendant in an FCA lawsuit is not involved in the negotiated breakdown between the fraud claims and the retaliation claims because it has no stake in the outcome of any breakdown. To the contrary, the relator will receive a percentage of any fraud damages recovered from the defendant in a qui tam action (a lesser percentage if the government exercises its right to intervene).

It is important for policyholders to remember that it is frequently the insurer's burden to establish what, if any, losses are uncovered, which is a task that may not be possible. An insured should not simply accept the insurer's proposed allocation when there may not be any uncovered amount to allocate.


Given the increasing number of FCA suits and the expanded reach of the FCA, companies should pay close attention to these developments. Companies should also proactively review and understand their EPL policies to become familiar with what events may constitute a "claim" under their policy and what steps a company must take to provide notice to and cooperate with its insurer. Even though FCA suits can be costly, maximizing a company's insurance assets may significantly soften the blow to the bottom line. Most importantly, companies should not accept its EPL insurer's first coverage position as being "final" without thoroughly exhausting all options under the policy and under the law.

Additional Resources

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The information in any resource collected in this virtual library should not be construed as legal advice or legal opinion on specific facts and should not be considered representative of the views of its authors, its sponsors, and/or ACC. These resources are not intended as a definitive statement on the subject addressed. Rather, they are intended to serve as a tool providing practical advice and references for the busy in-house practitioner and other readers.

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